Guest Column | March 14, 2018

The Coming Expansion Of Energy Management For Utilities

By Jason Wert

With so much demand on operating budgets, water and wastewater utility dollars must be spent — or conserved — wisely. Energy expenditure is a prime savings opportunity, but how do you pull it off successfully? Here are some factors, illuminated with a case study, to consider.

The one constant: change.

In this age of technology, the world is a constant engine of change for our water and wastewater utilities. Whether increasing water quality performance, enhanced automation for recordkeeping, or an iteration to be more cost-effective, technology is at the forefront of utility operations. Successful utilities stay abreast of technology innovations and find ways to integrate the most applicable enhancements to their operations.

Energy management and resource recovery have in many ways become a key technological focus point for utilities. Operational energy budgets are impacted by increasing costs for grid stability and energy production. While the inflationary rate for energy has been modest throughout the last five years, energy remains one of the three largest costs a utility must manage. Focusing on energy conservation, methods of procurement, and energy supply can result in stable or reduced costs for utilities.

We at RETTEW are fortunate to work with a very diverse group of public and private-sector utility operations. We have seen a tremendous uptick in innovative energy management in the past several years; our clients are part of a large trend in the expansion of energy management for utilities. Over a coming series of articles, we hope to share these success stories to allow utilities to consider alternative techniques for energy management.

While the inflationary rate for energy has been modest throughout the last five years, energy remains one of the three largest costs a utility must manage.

A Solar Strategy
The University Area Joint Authority is a modest-size wastewater utility in Central Pennsylvania. With a facility capacity of 10.5 MGD, the Authority collects and treats wastewater from the urban area surrounding the State College metropolitan region, including portions of the Pennsylvania State University. A recognized Utility of the Future Today, the Authority focuses on sustainability in its operations with an award-winning water reuse program and biosolids composting operation.

While highly successful in its water quality, operations, and economic sustainability, the Authority desired a larger sustainability mission through energy management. Having studied the possible implementation of solar energy and wind energy at their facility, the economics of self-executed project implementation were not very robust. The Authority benefits from a lower-cost energy supplier (all-in electrical cost of approximately $0.075 per kilowatt-hours [kWh]), and there was not sufficient cost savings to the ratepayers to justify the capital costs of a renewable energy component through traditional means.

Working in tandem with RETTEW, the Authority identified an alternative strategy with several key components. First, to leverage the tax benefits of a renewable energy system, the Authority partnered with a private developer (PACE Energy, LLC of New York, NY) to implement a “flip” structure. This structure, increasingly common in renewable power purchase agreements, allows the developer to fund, construct, and own the renewable energy system for a stipulated period (in this case, six years). The Authority purchases energy from the developer (utility replacement) during this period at a fixed price. At the end of the period, the Authority then purchases the system for fair market value, allowing both parties to benefit from the economic relationship. In the case of the Authority, the stipulated period was constructed to maximize tax benefits and achieve a negotiated equity return for the developer, while occurring at a future time when Authority debt was expiring allowing for a “no-net increase” to taxpayers for the capital incurred.

Battery Energy And Solar Strike A Balance
Secondly, the project integrated a battery energy storage system (BESS) into the overall improvements. Physically distinct and not connected to the solar array, the BESS was to provide a valuable economic contribution to the project financials. The system also benefits the Authority via power quality and reduction in transient voltage spikes that had damaged adjustable frequency drives and transformers in the facility. The BESS unit, also constructed and owned by the developer, will participate in electricity wholesaler PJM Interconnection’s Frequency Regulation Market. This will provide revenue that will subsidize the purchased cost of renewable energy during the “preflip” period with the developer, as well as provide new revenue to the Authority after ownership transition.

The University Area Joint Authority in State College, PA

Frequency Regulation Market Revenue
The Frequency Regulation Market is complex but, essentially, the operator of the BESS provides a service to the electrical grid operator through small, fast injections of power into or out of the BESS unit to maintain local and regional electricity stability. As we move about our lives and days, power use is transitioning from our homes to our workplaces and back to our homes again. The 24/7 pace of life and industry, coupled with the uncontrollable nature of renewable generation to overall supply, creates moments of instability. During this instability, frequency (the familiar 60 Hz we see listed for our electrical devices) can vary outside accepted tolerances. While this has minimal effect on our traditional appliances, our consumer electronics can suffer, and regulation has evolved to control frequency to tighter tolerances.

As in most services, a market has emerged where private entities can install BESS units to participate in the market, generating revenue and returns for capital investments. To give a sense of the scale of the growth in this market, three years ago RETTEW had not completed any BESS projects for Frequency Regulation, and today we are now involved in more than 30 projects throughout the U.S.

The Battery Impact
To get a sense of the BESS’s impact to the Authority’s sustainability mission, the Authority’s implemented solar array is 2.61 MW (DC). One of the 10 largest registered solar arrays in Pennsylvania, this is a significant investment and was implemented for an installed cost of approximately $1.50 per watt. The terms of the agreement with the developer resulted in a net energy cost for the solar portion of $0.09 per kWh, increasing to $0.15 per kWh shortly before the ownership transition. These costs are significantly higher than current electrical costs but lower than the $0.19 per kWh the Authority was faced with if they self-executed the project.

The solar array will provide in excess of 30 percent of the Authority’s power needs at the facility, and if the Frequency Market remains in a comfortable rate position, provide additional revenue for the expansion of the Authority’s energy strategy.

By combining the BESS into the overall project implementation, the Authority benefits from a revenue-sharing structure, preownership transition, and total revenue after the flip. While the market varies widely (from a low of $12 per megawatt hour (MWh) to upwards of $50 per MWh), long-term trends suggest that the BESS will provide net revenue to the Authority equivalent to a $0.05 per kWh subsidy. All told over the 15-year life of the BESS and solar arrays, which is 30 years, the Authority is projected to save more than 1 million dollars as compared to a “no project” baseline, while simultaneously achieving a portion of their energy goals. The solar array will provide in excess of 30 percent of the Authority’s power needs at the facility, and, if the Frequency Market remains in a comfortable rate position, provide additional revenue for the expansion of the Authority’s energy strategy.

Leveraging Assets
This type of structure, while complex, leverages the skills and assets of all parties. From BESS operations knowledge and market placement to capital equity and market risk-sharing, this type of application requires a careful selection of partners to ensure that the Authority is protected and their long-term goals and sustainability in energy and finance are met throughout the project life. Since the inception of this project in mid-2016, several other utilities have expressed interest in this application, and we expect it will grow to become more common, especially in higher-value Frequency Regulation Markets such as New York and New England.

About The Author

Jason Wert is a senior program manager with RETTEW and is responsible for the development and technical evaluation of traditional and renewable energy projects throughout the U.S. With more than two decades of experience, he brings practical project knowledge in financing, development, and structuring of public and private energy projects. He is a national expert in the planning, development, design, construction, and operation of membrane treatment, anaerobic digestion, and renewable energy projects.